The Cottage Grove City Council approved the sale of bonds for two capital projects at the April 19 council meeting. The General Obligation (GO) Improvement and Tax Abatement bonds, totaling $7,815,000, were authorized for sale to Minneapolis-based independent investment bank Piper Sandler. The bonds will pay for the planned Glacial Valley Park building and the 2023 Pavement Management Project.
GO bonds are municipal bonds that give local governments a tool to raise money to fund improvement projects like streets, infrastructure, and parks. The bonds are packaged based on planned projects and bid out to investment banks. The bank that is ultimately awarded the bid supplies the funds in the form of a loan to the city, and subsequently markets those bonds to private investors for return on investment. Six banking institutions submitted bids for the bonds in question, of which Piper Sandler offered the lowest rate of any responsible bidders.
Cottage Grove Finance Director Brenda Malinowski explained that the original issuance size of the bonds was able to be reduced from an initial $8,170,000 to the lower figure based on favorable bids received under the city’s newly-awarded AAA rating from Standard & Poor’s (S&P). She introduced Stacie Kvilvang, a representative from public finance advisory firm Ehlers, Inc., to present the details of the bond sale to the council.
Kvilvang broke down the bonds to show that $4,880,000 will go to the construction of the Glacial Valley Park building, and $2,935,000 is for the city’s planned annual street reconstruction projects. The loan terms will be 20 years and 15 years, respectively, closing on May 9, 2023.
Having just been upgraded from AA+ to a AAA rating by S&P this past week, Cottage Grove will be receiving favorable, top-tier interest rates and terms on the loan, saving money for city residents upfront and over the long-term. In this instance, at Piper Sandler’s rate of 3.58%, the city will save approximately $31,000 on interest alone.
Kvilvang noted that the AAA rating from S&P is determined by seven factors: institutional framework, the economy, and the city’s management, budgetary flexibility, budgetary performance, liquidity and debt/contingent liabilities. Only 30 Minnesota cities currently have a AAA rating, and only Woodbury and Cottage Grove retain that status in Washington County. S&P doesn’t release exact scores after determining a city’s credit rating, but based on Cottage Grove’s determining factors, Kvilvang estimated a weighted score of approximately 1.30 out of 5, with 1.00 being the best.
Commenting on the city’s progress, Kvilvang said, “You work collectively together over time to figure out how you’re going to build out your city, how you’re going to plan to pay for things, and how you’re going to maintain your assets so that your assets stay there.” She added, “It’s always been noted that you have your strong management, you have your strong policies, and that you have strong reserves. Those are all things that you can control.”
After explaining the bond terms and rating process, Kvilvang presented the council, along with Malinowski and City Administrator Jennifer Levitt, with the official AAA rating plaque. The plaque is in the form of an official bond, which she playfully noted has no cash value on its own.
In response, Mayor Myron Bailey said, “I know you said that it’s not worth anything, but it actually is. Even tonight, just the rates and the amount of money we saved the first time after getting this was hundreds of thousands of dollars being saved for the local taxpayers. It is a statement, by the way, to all of you on the staff for your help and your services, along with this council as well as some of the past councils to really get to this point.”
He added, “Many years ago, we were told we were a long way from getting this. We had to grow more, we had to do a lot more. But we’re very, very proud to be accepting this this evening.”
Councilmember Justin Olsen moved to adopt resolution 2023-058 to accept the proposal of the bond sale. Councilmember Steve Dennis seconded the motion, and upon vote the motion carried unanimously.
